Bush's handling of economy a concern

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Wall Street might be happy but the likely return of the Bush
Administration has Australian economists concerned.

While the focus has been on George Bush's handling of the war on
terror, an equally important issue has been his management of the
American economy.

That has attracted the interest of economists and governments
which realise the importance of the US economy to the health of
their own countries.

A spiralling budget deficit, soft economic performance and a
huge trade deficit on top of extremely low interest rates mean the
next president faces major issues that need addressing almost
immediately.

HSBC senior economist John Edwards said Mr Bush had, in the past
four years, shown scant interest in the American budget or wider
economic problems facing the United States.

If that was to continue, it would mean problems not only for the
American economy but also the global economy.

"The major global issue is that the US is running a budget
deficit that is going on its way to 5 per cent of GDP and linked to
that is a current account deficit that is heading towards 6 per
cent of GDP," he said.

"My hunch is that if Mr Bush is re-elected then he won't really
want to face up to these issues, even though he has to. The main
thing about Mr Bush is that he has not been engaged on economic
policy, and if Kerry was elected he has shown with his (US)
north-east background he is more fiscally conservative."

The big concern about the growing US trade deficit with the rest
of the world is the impact it will have on the value of the
American dollar.

A depreciating US dollar pushes up currencies such as the
Australian dollar.

Australian miners and farmers are already hurting with the
dollar around the US74 cents mark. Push that up to about US80 cents
and international trade for Australian firms becomes much
tougher.

If taxes have to go up to fill the deficit void, that will
depress demand in one of Australia's largest markets.

Then there is the flip side of higher US interest rates.

Westpac senior economist Justin McCarthy said interest rates
have to go up in the US, no matter the result of the election.

The Federal Reserve is expected to lift rates next week to about
2 per cent - well short of Australia's official cash rate of 5.25
per cent.

Mr McCarthy said the Fed faced a major battle in lifting rates
at a time when many Americans, just like most Australians, had
increased their debt levels to take advantage of historically low
borrowing costs.

"They will have to wean people off the idea that interest rates
this low are normal," he said.

"Americans, like Australians, are highly leveraged and although
the Fed will lift rates only gradually, it could have an
impact."

Mr McCarthy said a victory by Mr Bush would be welcomed by
equities markets, because of his moves to cut taxes, while a Kerry
victory would be better for the bond markets because of his plans
to slice into the US budget deficit.